Owner at Tomoka Fine & Rare, Jass Patel, recently joined the prestigious London Chamber of Commerce and will be making a quarterly article contribution to London Business Matters.
In Jass’ first article, he delves in to why bank manager thinks whisky cask investments can be “sensible strategy” how investors can profit from the cask whisky investment market.
If a friend told you they’d made a 4,600% return on a couple of whisky casks, you’d probably think they’d had a few too many or they’d been scammed. It’s actually the true story of bank manager Roger Parfitt who made a £220,000 return on a couple of casks he bought back in the 1990s.
In 1994 Parfitt purchased a cask of single malt Macallan for £3,200 and a cask of Tobemory for £1,500. Despite not being a whisky expert, Parfitt had expected the casks to appreciate in value over the years and hopefully generate a bit of extra cash to add to his retirement fund. To his surprise he successfully sold the casks earlier this year for £225,000.
He now plans to pay off his mortgage and retire three years earlier than planned. He’s also said he will purchase a cask for his two children which he’s nicknamed “the cask of mum and dad”, expecting to generate a healthy return to help fund their future.
“For me personally,” he told the Times newspaper, “when it comes to investing it has to be a sensible strategy. I believe that if you just do what everyone else is doing, you’re never going to get a result like this. The fact that it’s tax-free; you can prove the indexes, and Scotch Whisky isn’t going out of fashion – I think it’s a good, alternative strategy.”
While returns of 4,700% are pretty exceptional and whisky investments are unlikely to help you retire early, the key principle to bear in mind is that whisky casks do naturally appreciate over time. As a general rule, the longer a whisky has been aged in the cask, the higher price it can command. That’s why we pay significantly more for a Macallan 18 Year Old than a Macallan 12 Year Old. If it’s a Macallan 25 Year Old you’re after, you’ll be looking at a four-figure price tag.
Parfitt’s story comes with the caveat that most investors will see much more modest returns. The vast majority of casks are unlikely to appreciate as much as those from the now-legendary The Macallan distillery in Moray, Scotland. Investors would be wise to approach the cask market with a healthy dose of scepticism. You may have heard scare stories about cask whisky scams offering sky-high returns that later failed to materialise. As with any investment, it is vital to make sure you fully understand what you are paying for and steer clear of anyone promising get-rich-quick schemes.
Whisky prices are driven by age as well as the reputation of the distillery, rarity of that particular bottle or cask, and reviews from key tastemakers in the industry like Whisky Advocate and Jim Murray. Investors can expect average annual returns of around 8-10%, with the BC20 cask index reporting an average of 13.09% over the last 5 years. Older whiskies from top distilleries like Macallan command especially high prices and enjoy a cult following amongst collectors around the globe.
It’s important to remember that whisky is an asset-backed investment, meaning that once you have purchased your cask you will always have access to that physical asset which you can either sell on or bottle whenever you wish to.
Another hidden benefit is that Parfitt’s £200,000 windfall will not be subject to any Capital Gains Tax. Since HMRC classifies whisky as a “wasting asset” with a limited lifetime, CGT does not apply to any profits made on whisky casks. This is a nice advantage over other investment options, enabling you to maximise your overall returns across your wider investment portfolio.
Where some whisky investment firms come unstuck is delivering a solid and profitable exit strategy. Be aware that selling your cask onto a private buyer or a blender is unlikely to generate a healthy profit, especially if you hold a nondescript cask of no real provenance or you have paid over the market rate in the first place. That’s why Tomoka Fine and Rare offers a fully-managed service right through to bottling. We also have a retail arm selling fine spirits directly to consumers, which provides a ready-made exit route for our cask investors.
Transparency is key when it comes to managing your investments. We work with each of our investors to create an exit strategy that’s right for you. This includes upfront disclosure of all of the costs involved such as VAT and duty, so you have a clear and realistic expectation of your eventual profit.
For whisky enthusiasts like Parfitt, casks also give you the opportunity to get involved in the industry and bottle your very own whisky. “I remember thinking, if it doesn’t appreciate in value, the worst that could happen is that you would have to get it out of the warehouse, bottle it and drink it.” As well as a solid investment strategy, investing in your own cask could make you the proud owner of your very own whisky label.
Request your free Whisky Investment Guide to find out how you could profit from this rewarding alternative asset.
Read November / December 2024’s edition of London Business Matters here: https://www.londonbusinessmatters.co.uk/archive/2024-11/index.html
Access our whiskey guide for the latest on cask whiskey ownership.
